Market Update: August 27, 2019

Stocks opened slightly higher today (Dow 74 pts; SPX 0.1%) as uncertainty remains over the US-China trade war.  Utilities and real estate, both defensive sectors are leading the market higher in early trading.  Financials, energy, and Industrials sectors are in the red this morning. The SPX (S&P 500) is still about 4.5% lower than its late July all-time peak.  The VIX (Fear) Index is still close to its historical average, at about 20.  This is down from 25 in early August.  Gold is up about 13 this morning, signaling some fear remaining from the late July and early August volatility.

The yield on the 10-year Treasury Note (1.5%) remains below that of the 3-month Treasury yield (2.01%) when it first dropped to this level in March.  In Wall Street jargon, the yield curve is inverted.  In layman’s terms, this is equivalent to our government being charged more interest (annually of course) to take out a 1-month loan than a 30-year loan.  The last time this inversion occurred, 2005, it took 24 months before the market reacted with a downturn (Black rock, 2018).  The time before that, 1998, it took even longer, 34 months before the market (not just tech) finally moved negative in late 2000.  However, as Michael Verity mentioned earlier this month, our equity portfolios have been incrementally adjusting for many quarters along with the slow change in economic and other data.

In other news, Altria Group (MO), with sales mainly in the U.S., is in talks with Phillip Morris (PM), which sells primarily in overseas markets.  Altria is now a more diversified firm than when it initially split from Phillip Morris, back in 2008.  Yes, that means that they might be unmerging in the near future, while Altria has only confirmed that in talks, both firms are down in trading today.


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